5 questions for Dave Colbert
In 2013, a product recall that resulted in no deaths, no disease, and fewer than 250,000 units cost a midsize fresh cut company more than $ 2 million. The entire recall was virtually completed in less than 10 days and still cost millions of dollars.
While food companies work tirelessly to prevent recalls, there is no such thing as zero risk. Sometimes callbacks are made as an extension of another company’s callback, sometimes because our company protocols are not working, and other times because the bacterium or virus outsmart us despite all possible tampering. Therefore, every food company must be prepared for a recall, and that includes (besides an executable recall plan, but that is a different topic) assessing the possible impact and securing the necessary resources.
How much a food recall really costs is becoming a matter of millions. (Or maybe it’s less than that. More than that?) Risk managers, owners, operators, and others want to know. Unfortunately, there is not much current and reliable information on the subject.
In a 2011 publication, the Grocery Manufacturers Association (now Consumer Brands Association), Covington & Burling LLP, and Ernst & Young quoted an average recall price of $ 10 million. Still, the report is 10 years old and was researched prior to the Food and Drug Administration (FDA) implementation of the Food Safety Modernization Act (FSMA). So, at best, it probably lays the groundwork for consumer brand recalls.
In 2016, MEIRxRS, the training and auditing company, reported, “Almost a third of the recalls carried out in 2014 came from small companies with fewer than five employees. Use of data from the FDA and [Department of Agriculture], we’ve been working on calculating the cost of a callback. The average market value of products recalled in 2014 was $ 1,563,551, with a median of $ 33,598. Small businesses make up the vast majority of the recalled products. ”
However, only one variable is considered – the market value of the recalled products – and this is also dated.
The bottom line is that there are so many variables that it is impossible to calculate a fixed number that would apply to companies of different sizes, activities, business models, and products. Some of the variables are: the recalled product; Product disposition costs; lost future sales of the recalled product; Loss of sales of other company’s products due to poor customer / consumer trust; Public relations fees; Legal fees (regulatory advisor and / or liability advisor); Food Safety Consultant Fees; Costs related to additional cleaning and hygiene; Cost of taking corrective action; Laboratory fees; Reputation costs (intangible but real); government fees / fines; Employee overtime.
Undoubtedly, insurance companies that offer contamination policies have an algorithm that takes these and other variables into account. Anecdotally, here are some things I’ve heard from companies over the years that might help put the cost into context.
For starters, the total of lost sales and fees payable under certain supplier agreements can exceed the cost of the recalled product. And the costs for legal, public relations and technical services vary greatly depending on the hourly rate and the time required. Even at its best, businesses typically need these services for five or ten days.
When a professional third-party call center takes consumer calls, the cost typically starts around $ 7,000 to set up the phones and train the agents. Usage charges depend on many other factors including hours of use, call volume, languages, someone qualified to answer medical questions, etc. In the event of a major recall, the consumer hotline cost was over $ 150,000 for the first two weeks.
The recalling company generally pays postage, envelopes, paper, and copies for the written communications the chain branches send to loyalty cardholders. In 2015, a manufacturing company was billed 75 cents each for more than 500,000 written communications distributed nationwide. The recalling company also had to pay for the automated phone calls (robocalls) with consumers.
In 2011, an attorney for a medium-sized fresh produce company told me that the initial settlement cost for a death was $ 1 million. I’m sure it’s more today, and that doesn’t include the emotional trauma for everyone involved.
In the end, don’t get too hung up on the exact number that is a moving target. Take advantage of the information available, consider factors unique to your operation, and update the assessment regularly to adapt to the changing business environment. If nothing else, this exercise in estimating the cost of a recall will add value to your prevention efforts.